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About this blog: I grew up in Los Angeles and moved to the area in 1963 when I started graduate school at Stanford. Nancy and I were married in 1977 and we lived for nearly 30 years in the Duveneck school area. Our children went to Paly. We moved ... (More)

About this blog: I grew up in Los Angeles and moved to the area in 1963 when I started graduate school at Stanford. Nancy and I were married in 1977 and we lived for nearly 30 years in the Duveneck school area. Our children went to Paly. We moved downtown in 2006 and enjoy being able to walk to activities. I do not drive and being downtown where I work and close to the CalTrain station and downtown amenities makes my life more independent. I have worked all my life as an economist focusing on the California economy. My work centers around two main activities. The first is helping regional planning agencies such as ABAG understand their long-term growth outlook. I do this for several regional planning agencies in northern, southern and central coast California. My other main activity is studying workforce trends and policy implications both as a professional and as a volunteer member of the NOVA (Silicon Valley) and state workforce boards. The title of the blog is Invest or Die and that is what I believe is the imperative for our local area, region, state and nation. That includes investing in people, in infrastructure and in making our communities great places to live and work. I served on the recent Palo Alto Infrastructure Commission. I also believe that our local and state economy benefits from being a welcoming community, which mostly we are a leader in, for people of all religions, sexual preferences and places of birth. (Hide)

All Families Pay Taxes

Uploaded: Sep 15, 2011

Every so often someone on Town Square asserts that half of the population does not pay taxes. They see that many families do not earn enough to owe state or federal income taxes and take a giant leap of logic to claim that these residents pay no taxes.

This leap is obviously not true and in its falseness is insulting to many families who pay little or no income taxes but plenty of other taxes.

Residents pay sales taxes, fuel taxes, property taxes (it is in your rent), taxes on tobacco and alcohol, and most residents pay Social Security and Medicare payroll taxes. And there are lots of other taxes and fees we pay to fund our local, state and federal government.

Even people who cheat on their income tax pay lots of taxes. And people who are unfortunate to be unemployed still pay all the other taxes listed above.

Our income taxes are mildly progressive. Higher income residents normally pay a higher share of their income for income taxes.

But for most other taxes, lower income residents pay a higher share of their income even though they pay fewer dollars compared to higher income families.

This is true in most cases for sales taxes, fuel taxes and taxes on tobacco and alcohol as these purchases usually represent a larger share of income for lower income residents. So on an overall tax basis our system is only very mildly progressive at best and low income families pay nearly the same share of income in total taxes as most other families.

What this leap in logic is often accompanied by is the claim that residents who don't pay income taxes (falsely represented as not paying any taxes) are unjustly taking from folks who pay income taxes.

Posters are entitled to their politics but not to their facts. The claim that half or even 10% of families don't pay taxes is just false.

"The Internal Revenue Service tracks the tax returns with the 400 highest adjusted gross incomes each year. The average income on those returns in 2007, the latest year for IRS data, was nearly $345 million. Their average federal income tax rate was 17 percent, down from 26 percent in 1992."

Perspective, Hank, Walter and all the tax haters, what rate are you paying on your income?

Is it above or below the 17% paid by those averaging $345 million a year?

The assertion is that 47% of the USA pays NO FEDERAL INCOME tax, nor STATE taxes.

There is nothing "false" about the assertion. Of course sales taxes still apply. In the end, sales tax is the only "fair" tax there is. You buy more, you pay more taxes.

Somehow I doubt sincerely that the 47% pay anything near their "fair share" in any taxes through fuel, alcohol, cigarettes and sales. If this were true, we could simply all just quit paying income taxes and go for pure sales taxes and we would all be fine.

The "share" of taxes paid as a percent of income does not come anywhere near the 10,20 or 30% the "other" half pays in income taxes, who by the way ALSO pay the taxes on consumption of items as mentioned.

Posted by Sorry, does not fly,
a resident of ,
on Sep 16, 2011 at 7:25 am

Scrooge did not want to DONATE..he changed into self-motivated DONATION, not supporting someone else taking what they wished from him and doing what they wanted with it, nor supporting taking from anyone who had more in order to do what HE wished with it.

Robin Hood "stole" the people's goods and money BACK FROM the government. That is why he was and is such a mythological hero.

"Scrooge did not want to DONATE..he changed into self-motivated DONATION, not supporting someone else taking what they wished from him and doing what they wanted with it, nor supporting taking from anyone who had more in order to do what HE wished with it."
In our country and in fact most Western nations, you cannot pick and choose what you will support with your tax dollars. That is not how it works.
Go to countries that have no social safety net and/or taxes and see what is going on there.

"Robin Hood "stole" the people's goods and money BACK FROM the government. That is why he was and is such a mythological hero."
You hit the key point it is a myth. But anyway, he took back the money from a crooked sheriff who keeping it for his own personal use. Hmm, where have we heard that recently--rich person bilks the poor out of their money??
Not sure tea party/republicans really want to bring up Robin Hood

Right now a lot of rich provinces(zhenjiang, jiang xu,etc...) in china offer very generous health care and even free care for eldly ones without kids in its vastly wide countryside, they need just pay zero to live in the facility to receieve all kinds of care, and even for eldly with kids they offer health insurance that they only need to pay $100 per year, it would cover all expense once it reaches out of pocket $1000 per person.

Posted by Alfred E Newman,
a resident of ,
on Sep 16, 2011 at 12:19 pm

robber: I'm missing your point. Comparing our taxes with a communist country and their healthcare system, or lack of out in the rural areas adds what, exactly?

"sorry": "They are the most progressive in the world."

If we are the most progressive, how does that fit with the effective tax rate paid by the wealthiest Americans like a Walton who were given money by daddy or a Paris Hilton, being below the effective tax rate on income paid by hard working middle class American families?

17%, as posted above. So let's add "sorry" to the list of those questioned below:

"Perspective, Hank, Walter and all the tax haters, what rate are you paying on your income? Is it above or below the 17% paid by those averaging $345 million a year?"

Posted by Tax the man behind the tree,
a resident of ,
on Sep 16, 2011 at 3:28 pm

"If we are the most progressive, how does that fit with the effective tax rate paid by the wealthiest Americans like a Walton who were given money by daddy or a Paris Hilton, being below the effective tax rate on income paid by hard working middle class American families?"

The tax code encourages investment, in order to create wealth that, in turn, creates jobs. Specifically, capital gains tax rates are currently 15%. If the rich invest most of their money in equities, properties, risk-taking, etc., their returns will be taxed at a much lower rate than simple income taxes. If one thinks that increasing the capital gains tax rate will increase job creation, I have my doubts. I, personally, think that more money will go off shore, or just not be invested in risk-based enterprises.

Your argument works in a book or a lab. Not so much in the real world.

Bush cut cap gains in half and it didn't stimulate job creation in the slightest. Clinton created 20+ million jobs in his two terms with cap gains at the much higher level. Bush ended his terms with consecutive months losing OVER half a million jobs a month.

All the caps gain tax cuts did was widen wealth disparity and create huge budget deficits.

Pretty good if your name is Paris Hilton or Son o' Walton and you like lying by the pool opening dividend statements.

"Norbert, I'd like the imported truffles and Russian cavier on my pizza for lunch, please instruct my cook after you being my another glass of Dom. Then get the jet ready before we fly out to the 2nd yacht...."

"Yes, Miss Hilton, will that be all? Perhaps I should go shopping for you for some undergarments..."

Posted by Tax the man behind the tree,
a resident of ,
on Sep 16, 2011 at 7:44 pm

"Your argument works in a book or a lab. Not so much in the real world."

I, respecfully, disagree. The 15% capital gains tax rate is on profits gained, from risky investments. The other side of the equation is loss. When one considers both profits and loss, the 15% on capital gains is not out of line.

Posted by Sorry, does not fly,
a resident of ,
on Sep 17, 2011 at 6:34 am

Matt...if you really believe what you wrote, then clearly we need to have a 100% increase in cap gains.

Svatoid: If you really believe what you wrote, then we need to let 51% of the population take everything from the other 49% and spend it as they wish.

Honestly, people, follow the thoughts to the end of the bouncing ball where it falls off the cliff.

Which "cliff" do I prefer? The cliff of no taxes except for military protection, then private donations, or even locally decided tax rates and choices. At least then each are free to choose their lives and reap their consequences.

The other cliff is 2 wolves and a sheep voting on dinner plans. No thanks.

"if you really believe what you wrote, then clearly we need to have a 100% increase in cap gains."

Agreed.

A 100% increase from 15%, effectively doubling it, or putting it back around where it was when we had a great economy and budget surpluses paying down the national debt.

A strong America, with all boats lifted on a rising tide.

If you're going off on some absurd "let's take taxes TO 100%" rant, go ahead if it gets you off. Serious folks are talking about raising the top tier income tax rate a couple percent to Clinton's level. We all did great in the 90's.

But get all tea bagger crazy and talk about 100% tax rates if it makes you happy.

"If you're going off on some absurd "let's take taxes TO 100%" rant, go ahead if it gets you off. Serious folks are talking about raising the top tier income tax rate a couple percent to Clinton's level. We all did great in the 90's."

Why not talk about taking it to 100%? Sure, let's all get together and smoke a little dope and engage in your tea party rhetoric. So get high and talk about 75% or 100% in your little circle....

But we have real world proof, not just your hyperbole, that the economy, jobs and wealth grew at a great pace in the 90's. Retain the 90's tax and spending structure.

Or support the Paris Hilton type trust fund babies who add so much to our country.

"Or is taking it to the limit, a well-known method of analyzing an issue..." Funny. You must do pharmaceutical trials, right? Take the whole bottle of this drug, after all, a little is good, so all must be better!

The 90's gave us real world data on successful tax structure for supporting a booming economy, job creation, paying down the debt. Bush told us lower taxes on billionaires would create jobs. It didn't.

Posted by Tax the man behind the tree,
a resident of ,
on Sep 18, 2011 at 11:29 am

"But we have real world proof, not just your hyperbole, that the economy, jobs and wealth grew at a great pace in the 90's. Retain the 90's tax and spending structure."

That is a very tired and old argument. The 90's were a very different economic situation compared to current times. The dot.com boom was in full swing, stock options provided huge amounts of income to tax, the DoD budget was cut, the U.S. economy was flush.

We are no longer there. Taxing the rich will no longer work. The failure of Solyndra is an example of how foolish is the notion that our next wave of wealth will come from green technology. There probably will be some technologies that will help our economy, but who knows which ones they will be? That is why risk taking is important, and why it is important to keep investment taxes relatively low.

Posted by stephen levy,
a resident of ,
on Sep 19, 2011 at 10:00 amstephen levy is a registered user.

I started this thread becasue several posts claimed that half of the populaiton doesn't pay taxes. That is a false statement.

As usual posters would rather go back and forth about Republican and Democratic politics and their view of blame--even including this ridiculous idea that if someone wants the top tax rate to be 39% instead of 35%, it might as well be 100%, which no one is advocating.

Does anyone still want to claim that half of the population doesn't pay taxes and that income taxes are the only ones that count?

Posted by Tax the man behind the tree,
a resident of ,
on Sep 19, 2011 at 11:50 am

Everyone eventually pays taxes, either directly or indirectly. A couple of additional taxes, not yet mentioned: Infation is also a tax on fixed income folks. Corporate taxes get passed through via higher retail costs to the consumer. Income taxes have a hidden tax, which is the time and effort and $$ spent to prepare taxes. A very pernicious effect of income tax rates is that they are routinely manipualted by politicians to direct favors to chosen interests.

A flat consumption tax would eliminate many problems with taxation. The income tax is not worth it, anymore.

Posted by Tax the man behind the tree,
a resident of ,
on Sep 19, 2011 at 1:29 pm

"Consumption taxes are the dreamsof libertarians and the ultra wealthy."

We already have consumption taxes on everyone. However, much of them are indirect, due to pass throughs (e.g. corporate taxes). The multiple problems, related to the income tax (as I have already related, above), are just not worth it. BTW, another huge issue about the income tax is that it creates an adversarial attitude to the government, because the government can charge large fines or even throw one in jail if he/she fails to comply with the minutiae of the very complex rules.

Aside from the indirect tax issues, the income tax becomes a political football, allowing left and right to score points: The right says it is unfair, becasue the poor don't pay it; the left uses it as an excuse to tax the rich. Both of these points of view are political points of view, with little to do with economic reality.

Entirely false and ignorant. You failed to account for spending. Those other countries give more back (health care, child care, child expenses, etc, etc) to the poor, so their NET tax is much more progressive. Nice try spinning this, though.

Posted by Sorry, does not fly,
a resident of ,
on Sep 20, 2011 at 6:30 am

Dear sorry sorry...your snide "nice try spinning" comment fails to recall that the "give back" is much more to those who don't pay in than do.

Progressive is progressive. Taking from those who make and redistributing to those who don't is progressive. If the health care, child care, child expenses etc were paid for by those who took the benefits, then these countries would not be in even worse shape than we are.

Although, give us another couple years and we will match them. France used to be the worst of the EU, we are close to matching them now.

Mr Levy: Yes, I still claim that if half the population takes more than it pays, it is not paying their "share" of the tax burden. Sales taxes are paid much more by those with money than those without. Every tax you mention is paid more by those with than those with less. Nobody is saying "they" don't count, but to try to claim they pay "their share" is ridiculous. If so, we would have no deficit, no debt. Nobody is saying that to increase from x to y is to increase to 100% for some and none for others, we are saying that if it were true that some should pay more, then follow it to the end and ask the question of what is the logical end to the debate. That is that some should pay all, and others none. I am sure you can see where this fails.

All along this spectrum are the margins who drop out. The more we take from the producers, the more producers drop out. The fewer producers there are to tax, the less taxes there are for the under or non producers to use.

Regardless of what you are trying to posit, the facts bear out the claim that 47% of us pay no federal taxes, which is what you started your thread to address. I have not looked at what percent of us pay California State income tax. I suspect the same proportion, especially as more taxpayers have left the State than have moved in.

Nobody says "the other half pays nothing." We know that all taxes of consumption are paid by those who buy taxable stuff, and have course also know that those with more profit to spend, spend more, thus bear more of total tax "revenue" into our city, county, and State coffers.

Posted by Sorry, does not fly,
a resident of ,
on Sep 20, 2011 at 9:53 am

You know, perhaps it would be better, rather than going back and forth with the same old tired stuff, if we all started from a minimal educational level regarding taxation and economics, and how an ever progressive tax hurts the economics of the country more and more, especially the poor. ( witness the level of unemployment now in the less educated populations.)

Start with Economics 101 by Thomas Sowell, or even Myths and Fallacies. Anything by him, really.

Graduate into "FDR's Folly, How Roosevelt and His New Deal Prolonged the Great Depression (Crown Forum, 2003) by Powell. Nice explanation that connects the dots ...and eerily similar to today's responses at the DC level.

Please note, this was published long before BHO came into any elected power...

Posted by Tax the man behind the tree,
a resident of ,
on Dec 8, 2011 at 6:19 pm

It would be interesting to hear from Stephen Levy, re: How much MORE will all families in CA pay, if the high speed rail project is not stopped. Stpehen has been very quiet about this issue. Is this because he is at the beck and call of the labor unions?

Posted by Tax the man behind the tree,
a resident of ,
on Dec 9, 2011 at 2:21 pm

"Answer for us, if you have credible substantiation."

I asked Stephen Levy to answer, if you please. He is the expert economist, apparently, regarding CA. Throwing $100B down a rat hole, like HSR, has to have an effect on our general fund. I would like Stepehn to address the issue(s) related to that wasted expenditure.

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